This is a blog by a former CEO of a large Boston hospital to share thoughts about negotiation theory and practice, leadership training and mentoring, and teaching.

Wednesday, April 13, 2011

Recapping and handicapping the MA insurance "market"

The fastest way to raise hackles among Massachusetts hospitals, doctors, insurance companies, and even businesses is to suggest that a state rate-setting body would do a better job in setting payment rates between insurance companies and providers than the marketplace. Well, let's test the proposition about the efficacy of that "marketplace." Here is a short synopsis of the experience with the dominant insurance company over the last decade.

First, as documented so clearly by the Attorney General, pay above-market rates to the dominant provider system in Eastern Massachusetts, and also to geographically monopolistic smaller hospitals in the state. Transfer hundreds of millions of dollars in extra revenue to the dominant provider, permitting it to become still more dominant by investing in huge regional ambulatory care centers and acquiring physician groups. In so doing, assure an increase in patient volumes away from lower cost facilities and doctors, helping to fuel the rapid increase in health care costs in the state.

Second, citing your concern for the rising cost of health care, propose a move towards capitated, or global, payments. As disclosed in Commonwealth Magazine, pad the global rates you pay to the early adopters, to give them an incentive to take on the actuarial risk of those patients.

Third, in response to the state's arbitrary limitation on premiums for small businesses and individuals, squeeze those hospitals whose contracts come up for renewal. This further aggravates the reimbursement disparity, as many of those providers are not the ones who are above-market in the first place. By squeeze, I mean that you start off by offering a negative or zero rate increase to those hospitals. After negotiation, maybe you settle for 2 or 3 percent. Meanwhile, the dominant provider has a built-in contractual rate increase far in excess of that.

That's the recap. Now, on to the handicap. Both the dominant provider group and the dominant insurance company have an interest in portraying that their next contract renewal -- scheduled for next year -- is more in line with public and governmental expectations. Neither, though, wants that negotiation to be subject to recently proposed legislation. Recognizing the power of the US Constitution's contract clause, which would prohibit a retroactive review upon passage, their goal has to be to beat the legislative calendar and sign a new contract ahead of schedule. So look for the following "victory" announcement in the coming months:

The parties agree to experiment with bundled payments for certain diseases and procedures, staying far away, though, from a full system of capitation. The parties agree to a general rate increase of just a few percent. Together, they will say, this will "bend the cost curve" for this large group of doctors and hospitals. There won't be much talk about the fact that the base upon which the bundled payments and other fee-for-service payments is set remains far above market.

End result: Continued use of market power as the prime determinant in setting reimbursement rates.

While I’m a big believer in disclosure of actual insurer contract payment rates and bundled pricing for surgical procedures, I’m skeptical about how well capitation could work for the portion of hospital care that needs to take place in what Clayton Christensen calls a “solution shop” as opposed to a “value added process shop” where the surgeries take place. In the former, doctors need to first diagnose the patient’s problem. In the latter, they already determined what needs to be done. Even within primary care, patient non-compliance is a significant issue and the risk adjustment state of the art isn’t where it needs to be yet.

I just learned today that Highmark is considering the purchase of West Penn Allegheny Health System in Pittsburgh which would put Highmark in the healthcare provider business for the first time if they strike a deal. This could be an interesting trend if it catches on. For hospitals, as more physicians who practice at the hospital become employees, it should become easier to reduce avoidable harm, improve discharge planning, and standardize on fewer medical devices. For payers, if there were default payment rates or some other reasonable approach to determine an acceptable payment for care delivered under emergency conditions, it would be easier to exclude hospitals from the insurer’s network if necessary. It would also be helpful if insurers could contract with hospitals to provide sophisticated care but not routine care if the prices demanded for routine care are deemed too high. Alternatively, we could try the Swiss approach where all insurers in a canton negotiate with providers as a group and they all pay a given provider the same rate for a given service, test or procedure. That, of course, would require an anti-trust exemption.

Recently, because I relish an interesting test, I chose a community health center rather than a gleaming academic one for non-elective outpatient surgery, to compare what kind of experience I would have as a patient. My surgeon practices at both. I received excellent, highly safety-concious care (and I am a knowledgeable judge), with a warm, high touch patient focus at a much lower cost facility. As an insider to quality metrics, I found that the CHC has high ratings, and for some measures, higher than the academic centers. This includes infection rates and hand-hygiene by providers. My high cost private insurance rewarded me with a substantial bill for almost 50% of the CHC's cost - which was a fraction of what I would have been charged at an academic center. Am I and the CHC being punished for saving the insurer money? Or for not directing business to the high cost facility?

Not only are comparative rates not transparent for public discussion, but the consumer has no ability to compare what their own personal financial cost and health risk will be. And it is no longer true that the insured only pay $20 for care. The increasing difference in negotiated rate and cost arrive from physician offices, hospitals, and imaging centers in bills to consumers each day. There is poor leverage to protest cost for something already consumed. And while hospitals may be rewarded by insurers for quality progress, these savings or comparative data are not passed on to patients. Consumer protections fail on many, many fronts in this battle.

Not only did the AQC offer financially enticing quality incentives to early adopters, it baked in the existing rate differentials. From the BCBS AQC Year One Results white paper, "starting budgets for organizations in the AQC are based specifically on each organization’s historical rate of spending for its patient population".

I am not a philosophical fan of rate setting, living as I do in the state with, I believe, the most comprehensive, all-payor rate-setting mechanism of all 50. However, I must say that compared to what you are describing, our Md. rate setting system seems much more even handed.I know with your experience as a former regulator, you do not make your last point lightly. And btw, whatever happened to the feds' antitrust investigation of Partners? It would seem a fairly open and shut case. It just goes to show how impotent an enforcement tool this is, beyond empty threats.

Barry, I can't remember what (or if) Christensen suggested as a payment mechanism for the diagnostic solution shops but mark my words - they are in as dire need of cost containment incentives as the treatment arm. The over-ordering of tests is well discussed already, but I have personally observed an alarming scattershot approach to diagnostics involving friends and relatives recently, which seems to expose a loss of rationale and coherent thought among at least community physicians. (And they are the majority of physicians, of course) Perhaps the fee for service payments have had the unintended consequence of producing widespread loss of cognition in diagnosis. It certainly looks that way from my perspective. I don't know what solution is best, but we need to think carefully about this aspect.

Christensen suggested that the solution shop part of the hospital needed to be paid fee for service, as I recall. He noted that numerous diseases and conditions have similar symptoms and it’s hard to predict just how quickly and at what cost a definitive diagnosis can be determined. The fee for service payment model certainly encourages more testing rather than less. So does the fear of litigation over a failure to diagnose. If the patient turns out to have something rare or unusual, the docs want to find it. I don’t know what the answer to this conundrum is except, perhaps, utilization review. If some hospitals consistently perform more tests than others to discover, say, gallstones, payers would be on sound ground to put them in a non-preferred tier, at least for diagnostic work. If the same hospital does a great job performing value added process work, it could be in the preferred tier for those procedures. Obviously, there is a lot more work that needs to be done to pay providers, especially hospitals, in a way that drives practice patterns toward the results we want – high quality, cost-effective care.

If we want to get the free market to work we need to a much clearer idea of what healthcare costs.As a receiver of healthcare I find it obnoxious that I receive invoices from the parking attendant all the way to the specialist and the lab and this cost is NEVER disclosed up front.Government publish what the total (actual) cost of a procedure is at given service provider. The insurances then should be allowed to post what their subscribers cost is after any annual deductible. Such transparency would allow the consumer to choose who they wish to insure with (assuming they even have a choice) and all government would have to do is ensure that the reporting is accurate and comprehensive.